U.S. Customs and Border Protection Decision Makes Substantial Changes Affecting the Offshore Industry

Jonathan K. Waldron and Stefanos N. Roulakis

U.S. Customs and Border Protection (“CBP”) issued a significant decision on December 19, 2019, which will substantially alter how certain operations conducted by coastwise and non-coastwise vessels can be conducted offshore in the oil and gas and wind industries. The changes become effective on February 17, 2020. Stakeholders should examine this decision to determine how it will impact their operations.

NEW DEVELOPMENT

On December 19, 2019, CBP issued its decision in the Customs Bulletin entitled “Modification and Revocation of Ruling Letters Relating to CBP’s Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Notice”). Available here. The Notice clarifies CBP’s position on whether certain items constitute “vessel equipment,” which is not “merchandise” and may be transported by non-coastwise qualified vessels. The Notice also contains a section clarifying that “lifting operations” are not “transportation” within the meaning of the Jones Act. In short, the Notice eliminates previous erroneous decisions that allowed non-coastwise qualified vessels to transport items that should have been considered merchandise and not “vessel equipment” under the Jones Act. The Notice also returns CBP to the position that it held for decades that lifting operations may be conducted by non-coastwise qualified vessels.

BACKGROUND

In January 2017, CBP proposed a notice that would have overturned decades of precedent with regard to offshore operations potentially subject to the Jones Act. This notice, which was published in the CBP Customs Bulletin, proposed the modification of approximately 25 CBP rulings that delineated the difference between “equipment of the vessel,” the transportation of which does not implicate the Jones Act, and “merchandise,” which may only be transported by qualified vessels under the Jones Act. CBP withdrew this notice on May 10, 2017. Since then, regulatory officials engaged stakeholders in dialogue to resolve the issues raised in the notice.

The Notice also addressed issues related to lifting operations. Since at least 1983, CBP has held that a stationary, foreign-flag crane vessel may load and unload cargo as well as construct or dismantle a marine structure in compliance with the Jones Act. In 2012-2013, CBP issued what have become known as the “Koff Rulings” (HQ H225102 (September 24, 2012); HQ H23542 (November 15, 2012); and HQ H242466 (July 3, 2013)), which held that any movement of a vessel, even a short distance, while a topside is suspended from its crane and off its central axis for safety reasons is a violation of the Jones Act because in the Koff Rulings, this movement of the vessel is interpreted by CBP as providing part of the transportation of the topside between two points in the United States.

CBP issued its proposed Notice on October 23, 2019. There were 37 commenters to the Notice. CBP responded to the comments it received and clarified some points, but there were no substantive changes between CBP’s proposal and the Notice itself.

ANALYSIS

Vessel Equipment

Historically, CBP used a “Mission of the Vessel” concept to justify certain installation, repair, and maintenance work subsea. This concept was applied over broadly, which allowed non-coastwise qualified vessel to perform some of these activities that should have been reserved to Jones Act vessels. The Mission of the Vessel concept was revoked by the Notice and replaced with a new “Vessel Equipment” interpretation. Under this interpretation, the scope of vessel equipment includes items, which are “necessary and appropriate for the navigation, operation, or maintenance of a vessel and for the comfort and safety of the persons on board.”

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